[Federal Register Volume 59, Number 162 (Tuesday, August 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20629]


[[Page Unknown]]

[Federal Register: August 23, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Social Security Administration

20 CFR Part 416

[Regulations No. 16]
RIN 0960-AD61

 

Supplemental Security Income for the Aged, Blind, and Disabled; 
Treatment of Promissory Notes in Home Replacement Situations

AGENCY: Social Security Administration, HHS.

ACTION: Final rule.

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SUMMARY: This regulation explains how the Social Security 
Administration treats promissory notes and similar installment sales 
contracts and the proceeds generated therefrom when received as a 
result of the sale of a home which is excluded from resources under the 
supplemental security income (SSI) program. This regulation provides 
for application of the ``home replacement exclusion'' in situations 
where timely reinvestment of the installments into another home, which 
is similarly excludable as the principal place of residence, is made.

EFFECTIVE DATE: This final regulation is effective August 23, 1994.

FOR FURTHER INFORMATION CONTACT: Regarding this Federal Register 
document--Henry D. Lerner, Legal Assistant, Office of Regulations, 
Social Security Administration, 6401 Security Boulevard, Baltimore, MD 
21235, (410) 965-1762; regarding eligibility or filing for benefits--
our national toll-free number, 1-800-772-1213.

SUPPLEMENTARY INFORMATION:
    Section 1613(a)(1) of the Social Security Act (the Act) excludes an 
individual's home from resources for purposes of determining 
eligibility for SSI payments. Further, Sec. 416.1212(d) of our 
regulations allows the proceeds from the sale of an excluded home to be 
excluded from resources to the extent the proceeds are intended to be 
used and are, in fact, used within 3 months of the date of their 
receipt to purchase a replacement home which is similarly excluded. 
When that regulation was published in 1975, conventional financial 
arrangements were the norm. It was reasonable to expect an individual 
to receive the full purchase price of the former home in cash and to 
reinvest fully and immediately all cash proceeds from the sale. 
Therefore, no provision was included in the regulations for the 
treatment of home purchase financing other than full cash payment at or 
near the time of sale. Over the years, however, less conventional 
arrangements involving proceeds other than cash (such as promissory 
notes or installment sales contracts) have become more common.
    Under our regulations defining resources in the SSI program at 
Sec. 416.1201, promissory notes or installment sales contracts received 
as proceeds from the sale of a home are considered resources as long as 
the SSI claimant owns them and has the legal right to convert them to 
cash to be used for his or her support and maintenance. Such 
instruments can be excluded, however, under Sec. 416.1212(d) if they 
are converted to cash and used for the purchase of a replacement home 
within 3 months of receipt of the note or contract. In fact, prior to 
September 1989, we required that they be so converted in order to be 
considered an excluded resource. Accordingly, under this 
interpretation, the claimant's options were limited to selling the 
house for cash (possibly below market value) or liquidating the 
promissory note or installment sales contract likely at a substantial 
loss. Either of these options could have jeopardized the opportunity to 
acquire or maintain a replacement home without losing SSI eligibility.
    On September 11, 1986, the United States Court of Appeals for the 
Ninth Circuit rejected this interpretation of Sec. 416.1212(d) in the 
case of Hart v. Bowen, 799 F.2d 567. The Hart case involved an 
individual who sold her home under an installment sales contract. She 
applied the downpayment she received toward the downpayment on a new 
home. She also applied each of the monthly installment payments she 
received toward the mortgage on the new home. Her SSI benefits were 
terminated because the installment contract from the sale of her former 
home constituted an excess resource. The Ninth Circuit Court of Appeals 
found that the current market value of an installment sales contract 
resulting from the sale of an individual's excluded home is part of the 
value of the replacement home and thus excluded from countable 
resources, provided the payments generated by the contract were 
reinvested timely in the excluded replacement home. In May 1987, as a 
result of the decision rendered by the Ninth Circuit in Hart v. Bowen, 
we issued Acquiescence Ruling AR 87-3(9) to comply with the decision in 
the Ninth Circuit States.
    In September 1989, we changed our national practice and published 
Social Security Ruling SSR 89-5p, effective September 6, 1989. The 
ruling explained that the value of an installment sales contract 
constitutes a ``proceed'' from the sale of an excluded home which can 
be excluded from resources under Sec. 416.1212(d) if: (a) the contract 
results from the sale of an individual's home as described in 
Sec. 416.1212(a); (b) within 3 months of receipt (execution) of the 
contract, the individual purchases a replacement home which also fits 
the description in Sec. 416.1212(a); and (c) all contract generated 
sale proceeds are reinvested in the replacement home within 3 months of 
receipt of such proceeds. In addition, the ruling provided that when 
payments against the principal that result from the installment sales 
contract are being reinvested timely (i.e., within 3 months of receipt) 
in a new home, such payments are also excluded from resources. The 
ruling further provided that if the home replacement exclusion is not 
applicable because one or more installment payments have not been 
timely reinvested, the exclusion may be applied effective with the 
month following the month of receipt of a timely reinvested payment.
    This regulation codifies SSR 89-5p and reflects more completely our 
policy on the treatment of proceeds from the sale of an excluded home 
by designating the existing text in Sec. 416.1212 paragraph (d) as 
paragraph (d)(1), and adding two new paragraphs (d)(2) and (d)(3), to 
explain the conditions under which the value of a promissory note or 
similar installment sales contract, and other proceeds from the sale, 
consisting of the downpayment and monthly installment payments towards 
the principal, will be excluded from being considered SSI resources. In 
addition, we are adding new paragraphs (e), (f), and (g) to 
Sec. 416.1212 to explain the effects on SSI eligibility of failure to 
reinvest installment payments timely and the receipt of interest 
payments. When this final rule is published both SSR 89-5p and AR 87-
3(9) will be rescinded.

Public Comments

    We published the proposed rule with a Notice of Proposed Rulemaking 
(NPRM) in the Federal Register on October 13, 1993 (58 FR 52943). 
Interested persons and organizations were given 60 days to comment. The 
comment period closed on December 13, 1993. We received comments from 
only one commenter.
    We considered carefully all of the comments which this individual 
made on the proposed rule. However, for the reasons stated below, we 
did not adopt any of them. Accordingly, the final rule is the same as 
the proposed rule. A summary of the comments and our responses are 
provided below.
    Comment: The commenter disagreed with the policy to allow a person 
only 3 months to reinvest the proceeds from the sale of an excluded 
home into another home since the purchase of a home generally 
represents one of the largest transactions a person may make, one which 
would require time to make a wise decision. Thus, the commenter 
believes that it makes sense to give a person more time. The period 
should be increased from 3 months to 6 months similar to the time 
allowed for the disposal of other resources, such as retroactive title 
II or title XVI payments.
    Response: We do not plan to change the 3-month time period for 
reinvestment. The substance of our regulatory revision focuses on how 
to evaluate as resources certain noncash proceeds from the sale of an 
excluded home and not on the time period of reinvestment. The time 
period has been longstanding program policy which was not questioned in 
the Hart decision. We would expect that individuals selling their homes 
would arrange for the purchase of a new home before the former home is 
sold. In addition, we have no evidence to support the commenter's 
contention that the current time period for reinvestment is too short.
    Comment: The commenter criticized the proposed policy to count as a 
resource the value of the note as well as any proceeds not timely 
invested as being an ``overly harsh penalty.'' Because the individual 
has immediate access only to the proceeds of the note that are ``on 
hand'' to meet his or her basic needs and not the value of the note 
itself, the commenter believed that only the proceeds should be 
considered a resource.
    Response: This policy is consistent with the relevant provisions of 
the Act and other related regulations. Under section 1611(a) of the 
Act, Congress specifically has established resource limits for an 
individual's eligibility for the needs-based benefits in the SSI 
program in addition to income limits. As was stated above, promissory 
notes or installment sales contracts received from the sale of an 
excluded home are resources, as described in Sec. 416.1201, as long as 
the owner has the legal right to liquidate or convert the resource to 
cash which could be used for support and maintenance. In general, while 
it is true that some resources may not be available to be used 
immediately to meet an individual's daily needs, Congress has 
recognized that such resources have value in that they can be sold or 
``cashed out'' and the money received can be used by the individual for 
his or her support and maintenance.
    Comment: The commenter stated that the NPRM does not explain how 
the Agency will determine the value of a promissory note or similar 
installment sales contract.
    Response: We provide general guidance on resource valuation 
procedures in paragraphs (b) and (c) of Sec. 416.1201 of our 
regulations. These paragraphs explain how we evaluate liquid and 
nonliquid resources according to their equity value. For purposes of 
this evaluation, the equity value of a resource is defined as the price 
for which an item can reasonably be expected to sell on the open market 
in the particular geographic area involved minus any encumbrances. The 
value of a promissory note or installment sales contract will be 
determined by using this procedure.

Regulatory Procedures

Executive Order 12866

    We have consulted with the Office of Management and Budget (OMB) 
and determined that this rule does not meet the criteria for a 
significant regulatory action under E.O. 12866. Thus, it was not 
subject to OMB review.

Paperwork Reduction Act

    This regulation imposes no reporting/recordkeeping requirements 
requiring OMB clearance.

Regulatory Flexibility Act

    We certify that this regulation will not have a significant 
economic impact on a substantial number of small entities because this 
regulation affects only individuals and States. Therefore, a regulatory 
flexibility analysis as provided in Pub. L. 96-354, the Regulatory 
Flexibility Act of 1980, is not required.

(Catalog of Federal Domestic Assistance Program No. 93.807, 
Supplemental Security Income).

List of Subjects in 20 CFR Part 416

    Administrative practice and procedure, Aged, Blind, Disability 
benefits, Public assistance programs, Reporting and recordkeeping 
requirements, Supplemental Security Income.

    Dated: July 5, 1994.
Shirley Chater,
Commissioner of Social Security.
    Approved: August 16, 1994.
Donna E. Shalala,
Secretary of Health and Human Services.
    For the reasons set out in the preamble, Part 416 of Chapter III of 
Title 20, Code of Federal Regulations, is amended as follows:

PART 416--[AMENDED]

    1. The authority citation for Subpart L of Part 416 continues to 
read as follows:

    Authority: Secs. 1102, 1602, 1611, 1612, 1613, 1614(f), 1621 and 
1631 of the Social Security Act; 42 U.S.C. 1302, 1381a, 1382, 1382a, 
1382b, 1382c(f), 1382j and 1383; sec. 211 of Pub. L. 93-66; 87 Stat. 
154.

    2. Section 416.1212 is amended by redesignating the existing text 
in paragraph (d) as paragraph (d)(1), adding new paragraphs (d)(2) and 
(d)(3), and adding new paragraphs (e), (f) and (g) to read as follows:


Sec. 416.1212  Exclusion of the home.

* * * * *
    (d) Proceeds from the sale of an excluded home.
    (1) * * *
    (2) The value of a promissory note or similar installment sales 
contract constitutes a ``proceed'' which can be excluded from resources 
if--
    (i) The note results from the sale of an individual's home as 
described in Sec. 416.1212(a);
    (ii) Within 3 months of receipt (execution) of the note, the 
individual purchases a replacement home as described in 
Sec. 416.1212(a) (see paragraph (e) of this section for an exception); 
and
    (iii) All note-generated proceeds are reinvested in the replacement 
home within 3 months of receipt (see paragraph (f) of this section for 
an exception).
    (3) In addition to excluding the value of the note itself, other 
proceeds from the sale of the former home are excluded resources if 
they are used within 3 months of receipt to make payment on the 
replacement home. Such proceeds, which consist of the downpayment and 
that portion of any installment amount constituting payment against the 
principal, represent a conversion of a resource.
    (e) Failure to purchase another excluded home timely. If the 
individual does not purchase a replacement home within the 3-month 
period specified in paragraph (d)(2)(ii) of this section, the value of 
a promissory note or similar installment sales contract received from 
the sale of an excluded home is a countable resource effective with the 
first moment of the month following the month the note is executed. If 
the individual purchases a replacement home after the expiration of the 
3-month period, the note becomes an excluded resource the month 
following the month of purchase of the replacement home provided that 
all other proceeds are fully and timely reinvested as explained in 
paragraph (f) of this section.
    (f) Failure to reinvest proceeds timely. (1) If the proceeds (e.g., 
installment amounts constituting payment against the principal) from 
the sale of an excluded home under a promissory note or similar 
installment sales contract are not reinvested fully and timely (within 
3 months of receipt) in a replacement home, as of the first moment of 
the month following receipt of the payment, the individual's countable 
resources will include:
    (i) The value of the note; and
    (ii) That portion of the proceeds, retained by the individual, 
which was not timely reinvested.
    (2) The note remains a countable resource until the first moment of 
the month following the receipt of proceeds that are fully and timely 
reinvested in the replacement home. Failure to reinvest proceeds for a 
period of time does not permanently preclude exclusion of the 
promissory note or installment sales contract. However, previously 
received proceeds that were not timely reinvested remain countable 
resources to the extent they are retained.

    Example 1. On July 10, an SSI recipient received his quarterly 
payment of $200 from the buyer of his former home under an 
installment sales contract. As of October 31, the recipient has used 
only $150 of the July payment in connection with the purchase of a 
new home. The exclusion of the unused $50 (and of the installment 
contract itself) is revoked back to July 10. As a result, the $50 
and the value of the contract as of August 1, are included in a 
revised determination of resources for August and subsequent months.
    Example 2. On April 10, an SSI recipient received a payment of 
$250 from the buyer of his former home under an installment sales 
contract. On May 3, he reinvested $200 of the payment in the 
purchase of a new home. On May 10, the recipient received another 
$250 payment, and reinvested the full amount on June 3. As of July 
31, since the recipient has used only $200 of the April payment in 
connection with the purchase of the new home, the exclusion of the 
unused $50 (and of the installment contract itself) is revoked back 
to April 10. As a result, the $50 and the value of the contract as 
of May 1 are includable resources. Since the recipient fully and 
timely reinvested the May payment, the installment contract and the 
payment are again excludable resources as of June 1. However, the 
$50 left over from the previous payment remains a countable 
resource.

    (g) Interest payments. If interest is received as part of an 
installment payment resulting from the sale of an excluded home under a 
promissory note or similar installment sales contract, the interest 
payments do not represent conversion of a resource. The interest is 
income under the provisions of Secs. 416.1102, 416.1120, and 
416.1121(c).

[FR Doc. 94-20629 Filed 8-22-94; 8:45 am]
BILLING CODE 4190-29-P